Exam 2: Reviewing Financial Statements

Debt versus Equity Financing You are considering a stock investment in one of two firms (AllDebt, Inc. and AllEquity, Inc.), both of which operate in the same industry and have identical operating income of $3 million. AllDebt, Inc. finances its $6 million in assets with $5 million in debt (on which it pays 5 percent interest annually) and $1 million in equity. AllEquity, Inc. finances its $6 million in assets with no debt and $6 million in equity. Both firms pay a tax rate of 40 percent on their taxable income. What are the asset funders' (the debt holders and stockholders') resulting return on assets for the two firms?

Income Statement You have been given the following information for Fina's Furniture Corp.: net sales = $25,500,000; Cost of goods sold = $10,250,000; Addition to retained earnings = $305,000; Dividends paid to preferred and common stockholders = $500,000; Interest expense = $2,000,000. The firm's tax rate is 30 percent. What is the depreciation expense for Fina's Furniture Corp?

Debt versus Equity Financing You are considering a stock investment in one of two firms (AllDebt, Inc. and AllEquity, Inc.), both of which operate in the same industry and have identical operating income of $600,000. AllDebt, Inc. finances its $1.2 million in assets with $1 million in debt (on which it pays 10 percent interest annually) and $.2 million in equity. AllEquity, Inc. finances its $1.2 million in assets with no debt and $1.2 million in equity. Both firms pay a tax rate of 30 percent on their taxable income. What are the asset funders' (the debt holders and stockholders') resulting return on assets for the two firms?

Statement of Cash Flows Café Creations Inc. has net cash flow from financing activities for the last year of $25 million. The company paid $15 million in dividends last year. During the year, the change in notes payable on the balance sheet was a decrease of $40 million, and change in common and preferred stock was an increase of $50 million. The end of year balance for long-term debt was $40 million. What was their beginning of year balance for long-term debt?

Statement of Cash Flows In 2008, Upper Crust had cash flows from investing activities of ($250,000) and cash flows from financing activities of ($150,000). The balance in the firm's cash account was $90,000 at the beginning of 2008 and $105,000 at the end of the year. What was Upper Crust's cash flow from operations for 2008?

Statement of Cash Flows In 2010, Lower Case Productions had cash flows from investing activities of +$50,000 and cash flows from financing activities of +$100,000. The balance in the firm's cash account was $80,000 at the beginning of 2010 and $65,000 at the end of the year. What was Lower Case's cash flow from operations for 2010?

Which financial statement reconciles net income earned during a given period and any cash dividends paid within that period using the change in retained earnings between the beginning and end of the period?

Balance Sheet School Books, Inc. has total assets of $18 million of which $6 million are current assets. Cash makes up 10 percent of the current assets and accounts receivable makes up another 40 percent of current assets. School Books' gross plant and equipment has an original cost of $13 million and other long-term assets have a cost value of $2 million. Using this information, what are the balance of inventory and the balance of depreciation on School Books' balance sheet?

Ramakrishnan Inc. reported 2008 net income of $20 million and depreciation of $1,500,000. The top part of Ramakrishnan, Inc.'s 2007 and 2008 balance sheets is listed below (in millions of dollars). Calculate the 2008 net cash flow from operating activities for Ramakrishnan, Inc.

The Sarbanes-Oxley Act requires public companies to ensure that these individuals have considerable experience applying generally accepted accounting principles (GAAP) for financial statements.

Balance Sheet You are evaluating the balance sheet for Campus Corporation. From the balance sheet you find the following balances: Cash and marketable securities = $400,000, Accounts receivable = $200,000, Inventory = $100,000, Accrued wages and taxes = $10,000, Accounts payable = $300,000, and Notes payable = $600,000. What is Campus's net working capital?

Corporate Taxes Scuba, Inc. is concerned about the taxes paid by the company in 2010. In addition to $5 million of taxable income, the firm received $80,000 of interest on state-issued bonds and $500,000 of dividends on common stock it owns in Boating Adventures, Inc. What is Scuba's tax liability, average tax rate, and marginal tax rate, respectively?

Investment in operating capital is __________________________.

LLV Inc. originally forecasted the following financial data for next year: Sales = $1,000, Cost of goods sold = $675 and Interest expense = $90. The firm believes that COGS will always be 67.5% of sales. Due to increased global demand, the firm is now projecting that sales will be 20% higher than the original forecast. What is the additional net income (as compared to the original forecast) the firm can expect assuming a 35% tax rate?

For which of the following would one expect the book value of the asset to differ widely from its market value?

GW Inc. had $800 million in retained earnings at the beginning of the year. During the year, the firm paid $.75 per share dividend and generated $1.92 earnings per share. The firm has 100 million shares outstanding. At the end of year, what was the level of retained earnings for GW?

Is it possible for a firm to have positive net income and yet to have cash flow problems?

Balance Sheet Hair Etc. has total assets of $15 million. Twenty percent of these assets are financed with debt of which $1 million is current liabilities. The firm has no preferred stock but the balance in common stock and paid-in surplus is $8 million. Using this information what is the balance for long-term debt and retained earnings on Hair Etc.'s balance sheet?

On which of the four major financial statements would you find the increase in inventory?

Income Statement You have been given the following information for Nicole's Neckties Corp.: net sales = $2,500,000; Cost of goods sold = $1,300,000; Addition to retained earnings = $30,000; Dividends paid to preferred and common stockholders = $300,000; Interest expense = $50,000. The firm's tax rate is 40 percent. What is the depreciation expense for Nicole's Neckties Corp.?